Property Management Blog

Zillow’s 6 predictions for the 2017 housing market under Trump

The company speculates that the construction labor workforce may constrict given the President-elect's immigration stances.Key Takeaways

- Zillow predicts 2017 will mark a new stage of the post-recession housing recovery and the company expects recent trends to reverse course next year.

- New-home buyers could face increased building costs if President-elect Trump follows through on his tougher immigration policies, which may worsen the construction industry labor shortage, according to the company.

- Zillow also anticipates continued but slowed home price growth (3.6 percent over the year), decelerated rent prices, homeowners seeking affordable housing further from urban centers, and an increased homeownership rate driven by millennial buyers.

Though we haven’t yet flipped the page to December, the calendar keeps inching closer to the new year — and inauguration day. This makes for a spirited November, aka the start of 2017 forecast season.

Today, Zillow jumped in with six predictions for next year’s housing market, touching on some of the more nuanced factors that influence who will be buying and selling homes next year, where they’ll be focused and what challenges they stand to face.

Speculation from the real estate giant also brought up the potential effect of Trump’s hard-line immigration plans on construction industry labor — and its expectations for America’s historically low homeownership rate.

Zillow’s 2017 predictions

1. “Cities will focus on denser development of smaller homes close to public transit and urban centers.”

Last week economist John Burns also pointed to development happening in certain parts of California reflecting the “surban” movement (when urban and suburb collide), in which revitalized suburban downtowns are starting to authorize new housing. (Read more about the Pacific Union forecast in full).

2. “More millennials will become homeowners, driving up the homeownership rate. Millennials are also more racially diverse, so more homeowners will be people of color, reflecting the changing demographics of the United States.”

Zillow says nearly half of all buyers were first-time buyers in 2016. (NAR’s most recent Profile of Home Buyers and Sellers reported an uptick to 35 percent in 2016, the highest since 2013, while NAR also said that those under 35 made up 61 percent of first-time buyer transactions this year.)

NAR Chief Economist Lawrence Yun explained the potential rebound in a statement: “Young adults are settling down and deciding to buy a home after what was likely a turbulent beginning to their adult life and career following the Great Recession,” he said.

Added Yun, “Even with the affordability challenges many buyers face, the allure of homeownership is not lost among the younger generation.”

3. “Rental affordability will improve as incomes rise and growth in rents slows.”

This is supported by the Urban Land Institute’s October 2016 Real Estate Consensus Forecast, which noted that apartment rental rate growth is expected to moderate in the next three years to 3.5 percent in 2016, 3.0 percent in 2017, and 2.9 percent in 2018, but remain above the 20-year average growth rate of 2.8 percent.

“Renters should have an easier time in 2017. Income growth and slowing rent appreciation will combine to make renting more affordable than it has been for the past two years,” said Zillow’s chief economist, Dr. Svenja Gudell, in the release.

4. “Buyers of new homes will have to spend more as builders cover the cost of rising construction wages, driven even higher in 2017 by continued labor shortages, which could be worsened by tougher immigration policies under President-elect Trump.”

“There are pros and cons to both existing homes and new construction, and the choice for homebuyers can often be difficult,” Gudell said.

“For those considering new construction in 2017, it’s worth considering the added cost that may come amidst ongoing construction labor shortages that could get worse if President-elect Trump follows through on his hard-line stances on immigration and immigrant labor.

“A shortage of construction workers as a result may force builders to pay higher wages, costs which are likely to get passed on to buyers in the form of higher new home prices.”

5. “The percentage of people who drive to work will rise for the first time in a decade as homeowners move further into the suburbs seeking affordable housing — putting them further from adequate public transit options.”

“Those looking for more affordable housing options will be pushed to areas farther away from good transit options, in turn leading more Americans to drive to work,” said Gudell.

At the California Association of Realtors’ Real Estate Summit, “Housing Affordability and California’s Future,” Carol Galante, faculty director of the Terner Center for Housing Innovation, suggested that accessory dwelling units (ADUs), which are studios or small housing units next to main homes, could be one creative solution to California’s lack of inventory. This idea may have broader applications for the rest of the country.

These types of units allow for what some call “invisible density,” or additional housing stock that doesn’t change the way single-detached housing blocks look from the street.

6. “Home values will grow 3.6 percent in 2017, according to more than 100 economic and housing experts surveyed in the latest Zillow Home Price Expectations Survey. National home values have risen 4.8 percent so far in 2016.”

The possible slowdown in home price growth will be welcome relief for buyers, and could indicate phase two of the post-Recession market.

“In 2017, recent trends will reverse course as the housing market’s economic recovery enters a new stage,” Zillow noted in the release.

Dr. Gudell and her team of economists and data analysts produce the housing data and research covering more than 450 markets at Zillow Real Estate Research, Zillow says.

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Landlord Knowledge Base

If you’ve ever considered investing in a few rental properties in Philadelphia or Bucks County, PA now might be a good time. Prices are still low in Philadelphia, but have been on the upswing. According to the National Association of Realtors, the median price of an existing home in a US metropolitan area grew 13.7% between July 2012 and July 2013, the latest in a 17-month streak of year-over-year price increases.

New landlords can choose from properties that are likely to appreciate and a large pool of potential renters.Licensed realtor Pat Mueller cites a few reasons for this trend: “Many families have lost their homes to foreclosure and are entering the rentals market for the first time in years. Mortgages are also harder to get now, so fewer people are qualifying for a new one.”The more skills you bring to the table to get into Houses for Rent in Philadelphia Philadelphia or Bucks County, PA and the more time you have to devote to your properties, the faster you can make a return on your investment.

But investing in rentals can also be disastrous (or too stressful to be worthwhile) without expertise. Here are three professionals you may consult about your new rental properties, and what you can do to mitigate how much they cost you:Handyman: You may need to hire a specialist for some work on your rental. If you need new outlets or new pipes, for example, hire an electrician, plumber or licensed contractor. Handymen usually tackle smaller, more manageable tasks, like:

When You Could Skip It: You could do any (or all) of these projects yourself if you have the time and interest in learning. Of course, this only works if you live relatively close to your rentals and are flexible enough to service them on short notice. And if you’re willing to respond to the occasional 5 AM basement flooding.

Average Savings: Any base rates or costs-per-hour vary from location to location in Philadelphia or Bucks County, PA , but nationally, you can expect to spend an average of $60 to $85 per hour for repair costs. It general costs less to hire an individual handyman than a handyman employed by a company. Expect an additional charge if your job requires a trip to the store for materials.

Resident Property Manager As the owner of a handful of rental properties, you may be able to manage them yourself, but if you want help, a single resident manager would probably be more cost efficient than a property management company. Resident managers may:

Serve as a handyman

Advertise vacancies in your units

Show apartments to prospective tenants

Review rental applications

Collect rents

When You Could Skip It: Again, the closer you live to your properties and the more spare time you have, the less likely you are to need a manager. The obligations of being a boss will also cut into the time you save on maintenance.

Average Savings: The national median wage for residential managers is just over $25 per hour. Research the wages in your community and adjust according to how much responsibility your manager will take on. Real Estate Agent: Once you’ve gotten your financials in order and done your own research on the neighborhood(s) you’re considering, you might contact a realtor to show you potential properties. You can also arrange for a realtor in Philadelphia or Bucks County, PA to show rentals once they’re ready to rent.

When You Could Skip It: It depends. Even if you’re a local, or have thoroughly researched the neighborhood(s) you’re considering, a realtor is a great resource for a first-time rental buyer. Realtors have access to data and statistics not necessarily available to the general public and first-time buyers may not know all the right questions to ask. Using a realtor to fill your Houses for Rent vacancies is less of a no-brainer, depending on your other time commitments or whether you plan to hire a resident manager who could do the same thing.

Average Savings: As a buyer of rental properties, as when buying your own home, sellers typically pay most, if not all, of the buyer’s realtor fees. In this case, Mueller points out there’s little reason not to work with a realtor. For help in filling your units in Philadelphia or Bucks County, PA, the services of a realtor would set you back between 10-20% of the unit’s rent per month. Mueller recommends interviewing with several brokers before making your final decision to invest into Houses for Rent .

The Bottom Line: As a new landlord, you can’t necessarily control the flexibility of your schedule or the amount (and cost) of unexpected repairs to your properties. Rentals are a long-term investment. However, to maximize profits from your Houses for Rent, new rentals, you can buy close to home and start small. It is best to begin with just one or two properties. This will allow you to maximize the time you spend on your properties’ needs, and minimize the amount you’ll have to pay anyone else.